1. What is CD Return Comparison?

The CD Return Comparison calculator helps you compare the returns from two different Certificate of Deposit (CD) investments. It calculates the total interest each CD would earn based on principal, interest rate, and term length.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( principal \) — Initial investment amount
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Term length in years

Explanation: The formula calculates how much your initial investment will grow at a given interest rate over a specified time period.

3. Importance of CD Comparison

Details: Comparing CD returns helps investors make informed decisions about where to allocate funds for optimal returns, considering both interest rates and investment terms.

4. Using the Calculator

Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and term length in years (can include fractions like 0.5 for 6 months). The calculator will show which CD offers better returns.

5. Frequently Asked Questions (FAQ)

Q1: Should I always choose the CD with higher return?
A: Not necessarily. Consider liquidity needs - longer terms typically have higher rates but lock up your money longer.

Q2: Are CD returns guaranteed?
A: Yes, CDs typically offer fixed rates, so returns are predictable if held to maturity.

Q3: How often is interest compounded?
A: This calculator assumes annual compounding. Actual CDs may compound differently (monthly, quarterly).

Q4: Are there penalties for early withdrawal?
A: Most CDs charge penalties for early withdrawal, which would reduce actual returns.

Q5: Are CD returns taxable?
A: Yes, interest earned on CDs is generally taxable as ordinary income in the year it's earned.